The Bank of England raised its key interest rate by a quarter of a percentage point to 4.5% on Thursday and Governor Andrew Bailey said Britain's central bank would "stay on track" as it sought to rein in the fastest inflation of any major economy.
The central bank stopped predicting a recession after it revised its growth forecast from the gloomy one it issued in February, the biggest increase since it began publishing forecasts in 1997.
At the same time the BoE also now expects inflation to remain above 10% in March – falling more slowly than expected, mostly due to an unexpectedly large and persistent rise in food prices. The BoE also sees stronger wage growth than previously thought.
"We need to stay on track to ensure inflation falls back to the 2% target," Bailey said in a statement at the start of the press conference.
A Reuters poll last week showed most economists expected a quarter-point increase in May, pushing borrowing costs to their highest level since 2008 with a 12th straight rate hike.
Investors have been betting on further rises in interest rates to top 5% for rates this autumn. "If there is evidence of more sustained pressure, then further tightening of monetary policy will be necessary," the BoE said, maintaining the same guidance on future actions it did in February and March.
"Inflation data will be watched very closely over the coming months and may be a source of market volatility particularly around currencies, with sterling now pricing in more aggressive action from the BoE from here than other central banks," said senior economist Luke Bartholomew.
The BoE predicts the economy will grow 0.25% this year – compared with February's forecast of a 0.5% contraction.
The BoE estimates that about a third of past interest rate rises have been channeled to households and businesses, a slower path than previous tightening cycles due to a higher proportion of homeowners with fixed-rate mortgages.
